After a rough couple of years, precious metals did fairly well in 2017, with metals producers reporting some of the top gains. In terms of ETFs, the granddaddy of them all – the SPDR Gold Trust – is up over 10% year to date (YTD), which looks pretty good if you're into pure exposure to precious metals. However, there are other precious metals ETFs that look even better.
Money flowed into precious metals ETFs in 2017, with a number of catalysts increasing demand. The sector stands to gain further as traditional investors seek security from what many believe to be the top safe haven investment category in the investment industry. Many investors find it to be a hedge against uncertainty with factors such as interest rate hikes, currency fluctuations in China and India, the relative strength of the U.S. dollar against global currencies and turmoil in major European banks influencing demand.
If you're looking for a way to build exposure to precious metals as a potential safe haven, these ETFs, chosen on the basis of a combination of assets under management and performance, may be a great place to start your search. All figures are as of December 22, 2017. These funds do not include leveraged investing.
The VanEck Vectors Rare Earth/Strategic Metals ETF (REMX)
- Issuer: VanEck
- Assets under management: $152.2 million
- YTD performance: 75.56%
- Expense ratio: 0.61%
- Price: $28.96
The VanEck Vectors Rare Earth/Strategic Metals ETF has a year-to-date (YTD) return of 75.56% through December 22, 2017. This ETF invests in companies involved in producing and refining strategic metals and minerals. It is an index fund which seeks to track the performance and returns of the MVIS Global Rare Earth/Strategic Metals Index.
32% of the Fund is invested in Australian companies. The Fund has 21 holdings. Top holdings in the Fund include Pilbara Minerals, Lithium Americas, Tronox and Galaxy Resources. The Fund has a three-year annualized total return of 8.86%.
The ETFS Physical Palladium Shares (PALL)
- Issuer: ETF Securities
- Assets under management: $235.9 million
- YTD performance: 52.17%
- Expense ratio: 0.60%
- Price: $99.23
Palladium is hot right now partly because automakers are increasingly choosing it for catalytic converters over the more costly alternative platinum, a long-term trend that shows no signs of abating any time soon.
PALL tracks the spot price of palladium based on physical holdings of palladium bullion in JPMorgan vaults in Zurich and London. Volumes are decent, so there is no problem with liquidity. As far as holding costs, this fund's expense ratio is a bit high for a precious metals-backed fund, but if you're looking for pure exposure to palladium, this is really the only fund worth a look.
This fund has returned 52.17% in 2017. Three- and five-year annualized total returns are 8.02% and 8.28%, respectively.
The iShares MSCI Global Select Metals & Mining Producers ETF (PICK)
- Issuer: iShares
- Assets under management: $411.19 million
- YTD performance: 35.24%
- Expense ratio: 0.39%
- Price: $33.84
PICK is another popular ETF investing in stocks of metal and mining producers. It is indexed to the MSCI ACWI Select Metals & Mining Producers Ex Gold & Silver IMI, which excludes major gold and silver mining companies like Goldcorp Inc. and thus includes more integrated mining companies for a more diversified approach.
There are 186 equities in its basket of holdings with 24% of companies in the U.K. Top holdings in the Fund include BHP Billiton, Rio Tinto, and Glencore. In 2017 the Fund had a return of 35.24% through December 22. Over the past three years, the Fund has annualized total return of 7.75%.
The SPDR S&P Metals & Mining ETF (XME)
- Issuer: State Street SPDR
- Assets under management: $869.4 million
- YTD performance: 18.43%
- Expense ratio: 0.35%
- Price: $35.55
The SPDR S&P Metals & Mining ETF has a YTD return of 18.43%. Over the past three years, it has an annualized total return of 7.44%. XME is an index fund which seeks to track the holdings and performance of the S&P Metals and Mining Select Industry Index. This index includes metals and mining companies from the S&P TMI.
The Fund has 29 holdings. Top holdings in the Fund include Consol Energy, Allegheny Technologies and Alcoa.
The SPDR Gold Trust (GLD)
- Issuer: State Street SPDR
- Assets under management: $33.98 billion
- YTD performance: 10.34%
- Expense ratio: 0.40%
- Price: $120.94
The SPDR Gold Trust is the industry’s largest precious metals ETF by assets. As of December 22, 2017, assets under management were $33.98 billion. This ETF was the industry’s first fund to track the price of gold. It is also the first ETF to be backed by the physical asset. Its return seeks to match the performance of gold bullion’s price.
In 2017, the fund has a YTD return of 10.34%. Over the past three years, it has an annualized total return of 2.43%.
The Bottom Line
The effectiveness of gold, silver, and platinum at beneficially diversifying an investor’s portfolio is abundantly clear. However, obtaining these benefits requires knowing your personal tolerance for risk and investment goals before diving in. There is an inherent volatility in the precious metals market that indeed can be used as a wealth building tool but without diligence and forethought, this volatility can also spell ruin for a portfolio. Professional monitoring and appropriate risk management practices have to be applied in any case.